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World Bank slashes Asia growth forecast

Article By: ,  Financial Analyst
October 5, 2015 3:36 PM

The World Bank Today (October 5th) announced it has revised down its growth forecast for the Asia Pacific region for 2015 and 2016.

It now expects growth in the region to be 6.5 per cent this year and 6.4 per cent in 2016, down from an earlier forecast of 6.7 per cent. In particular, China's economy is forecast to grow 6.9 per cent this year and 6.7 per cent in 2016, down from an earlier forecast of 7.1 per cent and seven per cent respectively.

It said the downgrade was due to risks posed from the slowdown in China and raising US interest rates.

"Developing East Asia's growth is expected to slow because of China's economic rebalancing and the pace of the expected normalization of US policy interest rates," said the World Bank's regional chief economist Sudhir Shetty in a statement.

"If China's growth were to slow further, the effects would be felt in the rest of the region, especially in countries linked to China through trade, investment and tourism," he added.

Risks from US rate rise

Last month, the World Bank also urged the US to delay any rate rise until the global economy is in a more stable position. It said a September rate hike could trigger "panic and turmoil" in emerging markets.

World Bank chief economist Kaushik Basu said that rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate could lead to "fear capital" leaving emerging economies as well as to sharp swings in their currencies.

"I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence," Mr Basu said. 

The International Monetary Fund (IMF) also recently revised down its global economic growth forecast to 3.3 per cent in 2015, down from a 3.5 per cent initial forecast made in April.

It said this is due to a slower recovery in advanced economies and a further slowdown in emerging nations.

"Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July. This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America," IMF managing director Christine Lagarde said in a speech at the University of Indonesia in Jakarta.

"Asia as a region is still expected to lead global growth. But even here, the pace is turning out slower than expected – with the risk that it may slow even further given the recent spike in global risk aversion and financial market volatility," she added.

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